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The US debt market, considered the backbone of the global financial system, has started sounding alarm sirens for investors around the world. The interest yield on America's 30-year treasury bond has suddenly jumped to the level of 5.34 percent in intra-day trading. This figure is the highest level since June 2007, that is, after almost 19 years, investors are getting such huge profits by giving loans to the US government for three decades. At first glance, this number of 5.34 percent may seem simple, but when sovereign securities, considered to be the safest in the world, start giving such strong returns without any risk, then it becomes extremely challenging for equity markets, commodities and emerging markets like India to maintain financial stability. The record surge was immediately followed by a panic on Wall Street futures, with Nasdaq futures plunging more than 370 points, Dow futures plunging more than 160 points and S&P futures plunging nearly 45 points. Know what is bond yield and what is its inverse relationship with the stock market. It is very important for the general public and retail investors to understand the mathematics of bond yield. The US government raises debt from international markets to finance its massive welfare schemes, defense budget and infrastructure spending, in exchange for which it issues treasury bonds. A 30-year bond simply means that an investor is entrusting his capital to the US government for a long period of three decades. A bond's market price and its yield always act like two opposite ends of a scale. When panic increases in the financial markets and investors sell old bonds, their prices fall and as a result the yield i.e. percentage of return for new buyers increases. For example, if a bond with a face value of $100 has a coupon of $5 and its price falls to $90 due to selling, the effective yield for the new buyer will jump directly to 5.5 percent. At present, exactly this kind of selling is being seen in the US bond market. After all, why did the 30 year bond yield rise to 5.34 percent? These are the four main reasons: Four major global and economic reasons are working behind the US Treasury yield reaching this dangerous level. The first and foremost reason is America's skyrocketing debt. Washington's total national debt has reached a historic high of $40 trillion. When the government's expenditure exceeds its income, new bonds are issued indiscriminately to fill this fiscal deficit. When the supply of bonds in the market increases wildly and the number of buyers is limited, the government has to offer higher returns to attract investors. The second major trigger is crude oil prices remaining around $100 per barrel. Simmering geopolitical tensions in the Middle East have disrupted the supply chain of crude and LNG, increasing the costs of fuel, freight and manufacturing. The third factor is the interest rate policies of the US Federal Reserve (US Fed). Due to sticky inflation, the possibility of cutting interest rates has weakened, due to which investors are assuming that the policy of 'higher for longer' will remain intact. The fourth reason is the rise in term premium, where large fund managers are demanding additional returns given the uncertainties over longer tenures such as 30 years. Danger of getting stuck in the quagmire of expensive debt: Dark clouds looming over the American economy. The direct effect of the long-term yield remaining at 5.34 percent is that the cost of money has become expensive for the entire economy in America. Home loan or mortgage rates for American households are directly determined by the 30-year bond yield. When mortgage rates remain above 7 to 8 percent, there will be a huge decline in demand for houses in the real estate sector. Similarly, interest rates on automobile loans, credit card borrowings and corporate working capital will increase, which will put a brake on the profits of corporate companies and new appointments. The US Treasury Department also launched a program to buy back old long-term bonds worth $6 billion with the aim of increasing liquidity in the market, but this measure proved to be a straw in the face of the huge debt of $40 trillion and international rating agencies are also expressing concern over America's uncontrolled debt. Sell-off looms large over tech stocks and high-growth companies: Panic in global markets Higher bond yields are always a bitter pill for stock markets. Institutional investors begin to question why take risks in the highly volatile stock market when they can offer a solid return of 5.34 percent on US Treasuries without any credit risk. In this situation, the biggest impact falls on tech stocks with expensive valuations, AI based startups and growth companies. The present valuation of these companies depends on their estimated future earnings, and increasing the discount rate reduces their present valuation. Additionally, the quarterly margins of real estate, power, telecom and utility companies, which are heavily indebted, will shrink due to increase in interest costs, which is likely to continue the sharp decline and uncertainty in the global stock markets. The reign of the dollar versus collapsing global currencies: Emerging markets will face more trouble. The rise in bond yields to extremes provides additional strength to the dollar index as capital around the world flees to the US dollar to seek higher returns. In contrast, the currencies of emerging economies such as India, South Africa, Brazil and Indonesia face dual pressure. The first shock comes from the weakening of the local currency against the dollar, and the second shock comes in the form of spending more dollars to pay for expensive crude oil. However, if this rise in bond yields continues due to distrust in the fiscal credibility of the US government, then the dominance of the dollar may also be adversely affected in the future, but in the short term the strength of the dollar remains a headache for other currencies. There will be a tussle between gold and silver: Safe-haven demand vs. attractiveness of bonds. The surge in bond yields in the precious metals market is creating a complex scenario. Traditionally, gold does not give any regular interest or dividend, so when sovereign bonds start giving coupons of 5.34 percent, investors start withdrawing money from the bullion market and shifting it into bonds. The strengthening dollar also puts huge pressure on the prices of gold and silver in the international markets. But the other side of the coin is that US debt of $40 trillion, global wars and financial stress are fueling the 'safe haven' demand for gold. In the case of silver, there will be more volatility due to industrial use (solar panels and semiconductors), which will lead to sharp fluctuations in the commodity market. What are the clear implications for India, Dalal Street and domestic investors? In the Indian context, US bond yields reaching a 19-year peak poses challenges on many fronts. The first threat comes in the form of continued selling by foreign portfolio investors (FIIs). Given the high valuation of the Indian stock market, foreign institutional investors can book profits and safely park their money in US Treasuries, which will deepen the selling pressure on BSE Sensex and NSE Nifty. The second impact will be on the domestic currency rupee; Due to strengthening of dollar and withdrawal of foreign capital, the rupee may slip towards historic low levels against the dollar. This will increase the country's import bill and may increase the current account deficit (CAD). Indian companies which have raised dollar denominated external loans (ECB), their interest payment burden will increase. While export-oriented sectors like IT and pharma may get some relief from the weak rupee, it is time to be cautious for the broader market.